A

PROJECT REPORT
ON

“To do the study of general awareness and current issues of Micro

Finance in Slum Area of Baroda Region. “

Submitted to

Parul institute of eng. & technology

Affiliated to
GUJARAT TECHNOLOGICAL UNIVERSITY, AHMEDABAD

In Partial Fulfillment of the

Requirement of the Award of the Degree of
MASTER OF BUSINESS ADMINISTRATION

Under the Guidance of

Prof.Bhavik Mehta

Presented By

Mr. Nirav Shah (097420592001)

Mr. Keyur Desai (097420592060)

Parul institute of eng. & techo.

(Managed by Parul Arogya Seva Mandal, Waghodia)

P O. Limda, Vadodara – 391760

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 ACKNOWLEDGEMENT

It gives us immense pleasure to present this project report on “To do the study of general
awareness and current issues of Micro Finance in Slum Area of Baroda Region.” In partial
fulfillment of post-graduate course MBA.

No work can be carried out without the help and guidance of various persons. We are happy to
take this opportunity to express our gratitude to those who have been helpful to me in completing
this project report.

At the outset we would like to thank MR. BHAVIK MEHTA for their valuable advice and
guidance during our project completion for timely help concerning various aspects of project.
We also thank to all staff members for the help to complete the comprehensive project.

We would be falling in our duty if we do not express our deep sense of gratitude to prof.
Dr.P.G.K.Murthy (Head of the Department) without his guidance it wouldn’t have been
possible for us to complete this project work.

Lastly we would like to thank my parents, friends and well wishers who encouraged us to do this
research work and all those who contributed directly or indirectly in completing this project to
whom we are obligated to.

NIRAV SHAH

KEYUR DESAI

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 CONTENTS

SR. No PARTICULARS Page no.

1 Executive Summary/ Intoduction

2 Objective

3 Methodology

4 Company Profile

5 Products and Services

6 Study On Credit Risk Management in SBI

7 Study on Credit Policy

8 Findings

9 Recommendations

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10 Conclusion

11 Bibliography

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 Introduction

Microfinance is defined as any activity that includes the provision of financial services such as
credit, savings, and insurance to low income individuals which fall just above the nationally
defined poverty line, and poor individuals which fall below that poverty line, with the goal of
creating social value. The creation of social value includes poverty alleviation and the broader
impact of improving livelihood opportunities through the provision of capital for micro
enterprise, and insurance and savings for risk mitigation and consumption smoothing. A large
variety of actors provide microfinance in India, using a range of microfinance delivery methods.

Governments also have piloted national programs, NGOs have undertaken the activity of raising
donor funds for on-lending, and some banks have partnered with public organizations or made
small inroads themselves in providing such services. This has resulted in a rather broad
definition of microfinance as any activity that targets poor and low-income individuals for the
provision of financial services. The range of activities undertaken in microfinance include group
lending, individual lending, the provision of savings and insurance, capacity building, and
agricultural business development services.

Whatever the form of activity however, the overarching goal that unifies all actors in the
provision of microfinance is the creation of social value.

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 Microfinance Definition

According to International Labor Organization (ILO),

“Microfinance is an economic development approach that involves providing financial services
through institutions to low income clients.”
"The poor stay poor, not because they are lazy but because they have no access to capital."

India has about 153,000 retail outlets of the formal banking infrastructure—commercial banks…
There are about 33,000 banks in rural areas, and also have special category of banks called
regional rural banks, in the abbreviated form, RRBs. There are about 14,500 branches and the
cooperatives…The cooperatives—about 100,000 retail outlets…the population for the regional
outlet comes down to as low as 4,700. Annual credit demand by the poor in the country is
estimated to be about Rs 60,000 crores.

In the Indian context terms like "small and marginal farmers", " rural artisans" and
"economically weaker sections" have been used to broadly define micro-finance customers.
Women constitute a vast majority of users of micro-credit and savings services. In short, Micro
Finance means providing very poor families with very small loans to help them engage in
productive activities or grow their very small businesses.

Ultimately, the goal of microfinance is to give low income people an opportunity to become self-
sufficient by providing a means of saving money, borrowing money and insurance.

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7
 A Brief History of Microfinance in India

The post-nationalization period in the banking sector, circa 1969, witnessed a substantial amount
of resources being earmarked towards meeting the credit needs of the poor. There were several
objectives for the bank nationalization strategy including expanding the outreach of financial
services to neglected sectors (Singh, 2005). As a result of this strategy, the banking network
underwent an expansion phase without comparables in the world.

Credit came to be recognized as a remedy for many of the ills of the poverty. There spawned
several pro-poor financial services, support by both the State and Central governments, which
included credit packages and programs customized to the perceived needs of the poor. While the
objectives were laudable and substantial progress was achieved, credit flow to the poor, and
especially to poor women, remained low. This led to initiatives that were institution driven that
attempted to converge the existing strengths of rural banking infrastructure and leverage this to
better serve the poor. The pioneering efforts at this were made by National Bank for Agriculture
and Rural Development (NABARD), which was given the tasks of framing appropriate policy
for rural credit, provision of technical assistance backed liquidity support to banks, supervision
of rural credit institutions and other development initiatives.

In the early 1980s, the GoI launched the Integrated Rural Development Program (IRDP), a large
poverty alleviation credit program, which provided government subsidized credit through banks
to the poor. It was aimed that the poor would be able to use the inexpensive credit to finance
themselves over the poverty line. Also during this time, NABARD conducted a series of research
studies independently and in association with MYRADA, a leading non-governmental
organization (NGO) from Southern India, which showed that despite having a wide network of
rural bank branches servicing the rural poor, a very large number of the poorest of the poor
continued to remain outside the fold of the formal banking system. These studies also showed
that the existing banking policies, systems and procedures, and deposit and loan products were
perhaps not well suited to meet the most immediate needs of the poor. It also appeared that what

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the poor really needed was better access to these services and products, rather than cheap
subsidized credit. Against this background, a need was felt for alternative policies, systems and
procedures, savings and loan products, other complementary services, and new delivery
mechanisms, which would fulfill the requirements of the poorest, especially of the women
members of such households. The emphasis therefore was on improving the access of the poor to
microfinance rather than just micro-credit.

To answer the need for microfinance from the poor, the past 25 years has seen a variety of
microfinance programs promoted by the government and NGOs. Some of these programs have
failed and the learning experience from them have been used to develop more effective ways of
providing financial services. These programs vary from regional rural banks with a social
mandate to MFIs. In 1999, the GoI merged various credit programs together, refined them and
launched a new programme called Swaranjayanti Gram Swarozagar Yojana (SGSY). The
mandate of SGSY is to continue to provide subsidized credit to the poor through the banking
sector to generate self-employment through a self-help group approach and the program has
grown to an enormous size. MFIs have also become popular throughout India as one form of
financial intermediary to the poor. MFIs exist in many forms including co-operatives, Grameen-
like initiatives and private sector MFIs. Thrift co-operatives have formed organically and have
also been promoted by regional state organizations like the Cooperative Development
Foundation (CDF) in Andhra Pradesh. The Grameen-like initiatives following a business model
like the Grameen Bank. Private sector MFIs include NGOs that act as financial services
providers for the poor and include other support services but are not technically a bank as they
do not take deposits.

Recently, microfinance has garnered significant worldwide attention as being a successful tool in
poverty reduction. In 2005, the GoI introduced significant measures in the annual budget
affecting MFIs. Specifically, it mentioned that MFIs would be eligible for external commercial
borrowings which would allow MFIs and private banks to do business thereby increasing the
capacity of MFIs. Also, the budget talked about plans to introduce a microfinance act that would
provide some regulations on the sector. It is clear from the previous that the objectives of the
bank sector nationalization strategy have resulted into several offshoots, some of which have

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succeeded and some have failed. Today, Self-Help Groups and MFIs are the two dominant form
of microfinance in India.

Clients of micro finance:

The typical micro finance clients are low-income persons that do not have access to formal
financial institutions. Micro finance clients are typically self-employed, often household-based
entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small
income-generating activities such as food processing and petty trade. In urban areas, micro
finance activities are more diverse and include shopkeepers, service providers, artisans, street
vendors, etc. Micro finance clients are poor and vulnerable non-poor who have a relatively
unstable source of income. Access to conventional formal financial institutions, for many
reasons, is inversely related to income: the poorer you are the less likely that
you have access. On the other hand, the chances are that, the poorer you are, the more expensive
or onerous informal financial arrangements.

The Need in India:

India is said to be the home of one third of the world‘s poor; official estimates range from 26 to
50 percent of the more than one billion population.

About 87 percent of the poorest households do not have access to credit.

The demand for microcredit has been estimated at up to $30 billion; the supply is less than $2.2
billion combined by all involved in the sector. Due to the sheer size of the population living in
poverty, India is strategically significant in the global efforts to alleviate poverty and to achieve
the Millennium Development Goal of halving the world‘s poverty by 2015. Microfinance has
been present in India in one form or another since the 1970s and is now widely accepted as an
effective poverty alleviation strategy. Over the last five years, the microfinance industry has

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achieved significant growth in part due to the participation of commercial banks. Despite this
growth, the poverty situation in India continues to be challenging.

Some principles that summarize a century and a half of development practice were encapsulated
in 2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by the Group of Eight
leaders at the G8 Summit on June 10, 2004:
 Poor people need not just loans but also savings, insurance and money transfer services.
 Microfinance must be useful to poor households: helping them raise income, build up
assets and/or cushion themselves against external shocks.
 “Microfinance can pay for itself”. Subsidies from donors and government are scarce and
uncertain, and so to reach large numbers of poor people, microfinance must pay for itself.
 Microfinance means building permanent local institutions.
 Microfinance also means integrating the financial needs of poor people into a country‘s
mainstream financial system.
 “The job of government is to enable financial services, not to provide them.”
 “Donor funds should complement private capital, not compete with it.”
 “The key bottleneck is the shortage of strong institutions and managers.” Donors should
focus on capacity building.

Role of Microfinance:
The micro credit of microfinance programme was first initiated in the year 1976 in Bangladesh
with promise of providing credit to the poor without collateral , alleviating poverty and
unleashing human creativity and endeavor of the poor people. Microfinance impact studies have
demonstrated that
 Microfinance helps poor households meet basic needs and protects them against risks.
 The use of financial services by low-income households leads to improvements in
household economic welfare and enterprise stability and growth.
 By supporting women economic participation, microfinance empowers women, thereby
promoting gender-equity and improving household well being.
 The level of impact relates to the length of time clients have had access to financial
services.

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The obstacles or challenges to building a sound commercial microfinance industry include:
 Inappropriate donor subsidies
 Poor regulation and supervision of deposit-taking MFIs
 Few MFIs that mobilize savings
 Limited management capacity in MFIs
 Institutional inefficiencies
 Need for more dissemination and adoption of rural, agricultural microfinance
methodologies

Growth of Microfinance:

Activities in Microfinance

1) Microcredit:
It is a small amount of money loaned to a client by a bank or other institution. Microcredit can be
offered, often without collateral, to an individual or through group lending.

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2) Micro savings:
These are deposit services that allow one to save small amounts of money for future use. Often
without minimum balance requirements, these savings accounts allow households to save in
order to meet unexpected expenses and plan for future expenses.

3) Micro insurance:
It is a system by which people, businesses and other organizations make a payment to share risk.
Access to insurance enables entrepreneurs to concentrate more on developing their businesses
while mitigating other risks affecting property, health or the ability to work.

4) Remittances:
These are transfer of funds from people in one place to people in another, usually across borders
to family and friends. Compared with other sources of capital that can fluctuate depending on the
political or economic climate, remittances are a relatively steady source of funds

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TOP 50 MICROFINANCE INSTITUTIONS:

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15
16
17
*Risk, which looks at the quality of their loan portfolios, measured as the percent of the portfolio
at risk greater than 30 days; and return, which is measured as a combination of return on equity
and return on assets.
From this above table we can notice that the Risk of companies is measured as the percentage of
Portfolio at Risk (PAR) which means and return is measured as a combination of ROA and ROE.
ROA = Net Operating Income-Taxes /Average Assets
Return on Assets (ROA) indicates how well an MFI is managing its assets to optimize its
profitability. The ratio includes not only the return on the portfolio, but also all other revenue
generated from investments and other operating activities. From the above list we can notice that,
there are seven companies of India in top 50 companies in the world. There is a huge potential
for India to grow in this sector, because out of total 500 million poor people from all over the
world, who is getting beneficial from the micro finance institutions, 80 to 90 million are from
India only. So there is still a huge market and opportunities in this segment. The total loan that
the MFI‗s had provided to the poor people in India crosses Rs 24 billion till October 08. And
this is only 40% of the total poor. If this turns into 100%, then we will see the new face of India.

Microfinance in India:

At present lending to the economically active poor both rural and urban is pegged at around Rs
7000 crores in the Indian banks‘ credit outstanding. As against this, according to even the most
conservative estimates, the total demand for credit requirements for this part of Indian society is
somewhere around Rs 2,00,000 crores.

Microfinance changing the face of poor India

Micro-Finance is emerging as a powerful instrument for poverty alleviation in the new economy.
In India, micro-Finance scene is dominated by Self Help Groups (SHGs) - Banks linkage
Programme, aimed at providing a cost effective mechanism for providing financial services to
the 'unreached poor'. In the Indian context terms like "small and marginal farmers", " rural
artisans" and "economically weaker sections" have been used to broadly define micro-finance
customers. A more refined model of micro-credit delivery has evolved lately, which emphasizes

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the combined delivery of financial services along with technical assistance, and agricultural
business development services. When compared to the wider SHG bank linkage movement in
India, private MFIs have had limited outreach. However, we have seen a recent trend of larger
microfinance institutions transforming into Non-Bank Financial Institutions (NBFCs). This
changing face of microfinance in India appears to be positive in terms of the ability of
microfinance to attract more funds and therefore increase outreach. In terms of demand for
micro-credit or micro-finance, there are three segments, which demand funds.

They are:
 At the very bottom in terms of income and assets, are those who are landless and engaged
in agricultural work on a seasonal basis, and manual labourers in forestry, mining,
household industries, construction and transport. This segment requires, first and
foremost, consumption credit during those months when they do not get labour work, and
for contingencies such as illness. They also need credit for acquiring small productive
assets, such as livestock, using which they can generate additional income.

 The next market segment is small and marginal farmers and rural artisans, weavers and
those self-employed in the urban informal sector as hawkers, vendors, and workers in
household micro-enterprises. This segment mainly needs credit for working capital, a
small part of which also serves consumption needs. This segment also needs term credit
for acquiring additional productive assets, such as irrigation pump sets, bore wells and
livestock in case of farmers, and equipment (looms, machinery) and work sheds in case
of non-farm workers.

 The third market segment is of small and medium farmers who have gone in for
commercial crops such as surplus paddy and wheat, cotton, groundnut, and others
engaged in dairying, poultry, fishery, etc. Among non-farm activities, this segment
includes those in villages and slums, engaged in processing or manufacturing activity,
running provision stores, repair workshops, tea shops, and various service enterprises.

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 These persons are not always poor, though they live barely above the poverty line and
also suffer from inadequate access to formal credit.

Today India is facing major problem in reducing poverty. About 25 million people in India are
under below poverty line. With low per capita income, heavy population pressure, prevalence of
massive unemployment and underemployment, low rate of capital formation, misdistribution of
wealth and assets, prevalence of low technology and poor economics organization and instability
of output of agriculture production and related sectors have made India one of the poor countries
of the world.

Present Scenario of India:

India falls under low income class according to World Bank. It is second populated
country in the world and around 70 % of its population lives in rural area. 60% of people
depend on agriculture, as a result there is chronic underemployment and per capita
income is only $ 3262. This is not enough to provide food to more than one individual.
The obvious result is abject poverty, low rate of education, low sex ratio, and
exploitation. The major factor account for high incidence of rural poverty is the low asset
base. According to Reserve Bank of India, about 51 % of people house possess only 10%
of the total asset of India .This has resulted low production capacity both in agriculture
(which contribute around 22-25% of GDP) and Manufacturing sector. Rural people have
very low access to institutionalized credit (from commercial bank).

 Marketing of Microfinance Products:

1. Contract Farming and Credit Bundling:

Banks and financial institutions have been partners in contract farming schemes, set up to
enhance credit. Basically, this is a doable model. Under such an arrangement, crop loans can be
extended under tie-up arrangements with corporate for production of high quality produce with

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stable marketing arrangements provided – and only, provided – the price setting mechanism for
the farmer is appropriate and fair.

2. Agri Service Centre:

Rabo India Finance Pvt. Ltd. has established agri-service centers in rural areas in cooperation
with a number of agri-input and farm services companies. The services provided are similar to
those in contract farming, but with additional flexibility and a wider range of products including
inventory finance. Besides providing storage
facilities, each centre rents out farm machinery, provides agricultural inputs and information to
farmers, arranges credit, sells other services and provides a forum for farmers to market their
products.

3. Non Traditional Markets:

Similarly, Mother Dairy Foods Processing, a wholly owned subsidiary of National Dairy
Development Board (NDDB) has established auction markets for horticulture producers in
Bangalore. The operations and maintenance of the market is done by NDDB. The project, with
an outlay of Rs.15 lakh, covers 200 horticultural farmers associations with 50,000 grower
members for wholesale marketing. Their produce is planned with production and supply
assurance and provides both growers and buyers a common platform to negotiate better rates.

4. Apni Mandi:
Another innovation is that of The Punjab Mandi Board, which has experimented with a
‗farmers‘ market‘ to provide small farmers located in proximity to urban areas, direct access to
consumers by elimination of middlemen. This experiment known as "Apni Mandi" belongs to
both farmers and consumers, who mutually help each other. Under this arrangement a sum of Rs.
5.2 lakh is spent for providing plastic crates to 1000 farmers. Each farmer gets 5 crates at a
subsidized rate. At the mandi site, the Board provides basic infrastructure facilities. At the farm
level, extension services of different agencies are pooled in. These include inputs subsidies,

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better quality seeds and loans from Banks. Apni Mandi scheme provides self-employment to
producers and has eliminated social inhibitions among them regarding the retail sale of their
produce.
 How MFI’s manage their repayment and risk management?
Risk is an integral part of financial services. When financial institutions issue loans, there is a
risk of borrower default. When banks collect deposits and on-lend them to other clients (i.e.
conduct financial intermediation), they put clients‘ savings at risk. Most MFI‗s provides the
loans without or with smaller portion of deposit or, so for them repayment of interest or principal
is very risky. All MFI‗s face risks that they must manage efficiently and effectively to be
successful. When poorly managed risks begin to result in financial losses, donors, investors,
lenders, borrowers and savers tend to lose confidence in the organization and funds begin to dry
up. When funds dry up, an MFI is not able to meet its social objective of providing services to
the poor and quickly goes out of business.

 What is Risk Management?

Risk management is a discipline for dealing with the possibility that some future event will cause
harm. It provides strategies, techniques, and an approach to recognizing and confronting any
threat faced by an organization in fulfilling its mission. Risk management may be as
uncomplicated as asking and answering three basic questions:
 What can go wrong?
 What will we do (both to prevent the harm from occurring and in the aftermath of an
"incident")?
 If something happens, how will we pay for it?

 Benefit of Risk Management:

 Early warning system for potential problems: A systematic process for evaluating and
measuring risk identifies problems early on, before they become larger problems or drain
management time and resources. Less time fixing problems means more time for
production and growth.

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  Better information on potential consequences, both positive and negative. A proactive
and forward-thinking organizational culture will help managers identify and assess new
market opportunities, foster continuous improvement of existing operations, and more
effectively performance incentives with the organization‗s strategic goals.
 Encourages cost-effective decision-making and more efficient use of resources.

 Major Risks to Microfinance Institutions:

1. Financial Risks:

Most MFIs focus on financial risks, including credit, liquidity, Interest rate, and investment risks.
Mentioned under are the risks which are very critical for the MFI‗s.

a) Credit risk:
Credit risk, the most frequently addressed risk for MFIs, is the risk to earnings or capital due to
borrowers‗late and non-payment of loan obligations. Credit risk encompasses both the loss of
income resulting from the MFI‗s inability to collect anticipated interest earnings as well as the
loss of principle resulting from loan defaults. Credit risk includes both transaction risk and
portfolio risk.

b) Transaction risk:
Transaction risk refers to the risk within individual loans. MFIs mitigate transaction risk through
borrower screening techniques, underwriting criteria, and quality procedure for loan
disbursement, monitoring, and collection.

c) Portfolio risk:
Portfolio risk refers to the risk inherent in the composition of the overall loan portfolio. Policies
on diversification, maximum loan size, types of loans, and loan structures lessen the portfolio
risk.

d) Liquidity risk:

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Liquidity risk is the risk that an MFI cannot meet its obligations on a timely basis. Liquidity risk
usually arises from management‗s inability to adequately anticipate and plan for changes in
funding sources and cash needs. Efficient Liquidity Management requires maintaining sufficient
cash reserves on hand (to meet client withdrawals, disburse loans and fund unexpected cash
shortages) while also investing as many funds as possible to maximize earnings. Liquidity
management is an ongoing effort to strike a balance between having too much cash and too little
cash.

e) Interest rate risk:

Interest rate risk is the risk of financial loss from changes in market interest rates. The greatest
interest rate risk occurs when the cost of funds goes up faster than the financial institution can or
is willing to adjust its lending rates.

How to manage interest rate risk?

To reduce the mismatch between short-term variable rate liabilities and long-term fixed rate
loans, managers may refinance some of the short-term borrowings with long-term fixed rate
borrowings. This might include offering one and two-year term deposits as a product and
borrowing five to 10 year funds from other sources. Such a step reduces interest rate risk and
liquidity risk, even if the MFI pays a slightly higher rate on those funding sources.

To boost profitability, MFIs may purposely ―mismatch assets and liabilities in anticipation of
changes in interest rates. If the asset liability managers think interest rates will fall in the near
future, they may decide to make more long-term loans at existing fixed rates, and shorten the
term of the MFI‗s liabilities. By lending long and borrowing short, the MFI can take advantage
of the cheaper funding in the future, while locking in the higher interest rates on the asset side. In
this case, the MFI has increased the interest rate risk in the hope of improving the profitability of
the bank.

2. Operational Risks:

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Operational risk arises from human or computer error within daily service or product delivery.
This risk includes the potential that inadequate technology and information systems, operational
problems, insufficient human resources, or breaches of integrity (i.e. fraud) will result in
unexpected losses.

 Two types of operational risk:

a) Transaction risk:
Transaction risk is particularly high for MFIs that handle a high volume of small transactions
daily. Since MFIs make many small, short-term loans, this same degree of cross-checking is not
cost-effective, so there are more opportunities for error and fraud. As more MFIs offer additional
financial products, including savings and insurance, the risks multiply and should be carefully
analyzed as MFIs expand those activities

b) Fraud risk:
Fraud risk is the risk of loss of earnings or capital as a result of intentional deception by an
employee or client. The most common type of fraud in an MFI is the direct theft of funds by loan
officers or other branch staff. Other forms of fraudulent activities include the creation of
misleading financial statements, bribes etc.

How to minimize fraud risk?

 Introduced an education campaign to encourage clients to speak out against corrupt staff
and group leaders.
 Standardized all loan policies and procedures so that the staff cannot make any decision
outside the regulations.
 Established an inspection unit that performs random operational checks.

3. Strategic Risks:
Strategic risks include internal risks like those from adverse business decisions or improper
implementation of those decisions, poor leadership, or ineffective governance and oversight, as
well as external risks, such as changes in the business or competitive environment.

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a) Governance risk:
Governance risk is the risk of having an inadequate structure or body to make effective
decisions.

b) External business environment risk:

Business environment risk refers to the inherent risks of the MFI‗s business activity and the
external business environment. To minimize business risk, the microfinance institution must
react to changes in the external business environment to take advantage of opportunities, to
respond to competition, and to maintain a good public reputation.

 Why micro finance prefers to provide loan to women?

A majority of microfinance programs generally target women—often more financially

responsible at repaying than men—as clients, providing them with direct control over resources.
Why MFIs typically targeted women.

These factors included:

 Repayment rates are higher than men, so lending to women is a better Investment.
 Women are on average poorer than men, so focusing on women can help achieve poverty
targets.
 Women‗s activities contribute to a community‗s economic growth, so lending to women
is more efficient.
 The members in a group are selected so as to be in the same age group and residing in the
same locality being friends but not from family. In case of problems in recovery from
even one of the members, the system of joint liability ensures recovery of the dues from
all the members within a group.
 Women are better borrowers because they repay their loans more faithfully than men
repay and tend to spend money on improving the standard of living of their family.
 It has been proved that women are those who are the most able to manage the money of
the household. Experience has shown that women are a good credit risk, and that women
invest their income surround the well being of their families.

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  Women have proven to be the best poverty fighters. Experience and studies have shown
that they use the profits from their businesses to send their children to school, improve
their families‘ living conditions and nutrition, and expand their businesses.
 By providing access to financial services only through women—making women
responsible for loans, ensuring repayment through women, maintaining savings accounts
for women, providing insurance coverage through women—microfinance programs send
a strong message to households as well as to communities.

 Why MFI’s being criticized for providing loans to women?

 It was found that while women were getting the loans, a "significant portion" of those
loans are directly invested by male relatives (although women bear the liability for
repayment)
 Only 37% of the cases had women retained full or significant control over the businesses
that were in their names.
 Repayment tensions in other microfinance programmes as well. In India in 2008 in the
state of Andhra Pradesh, media reports linked to 70 suicide deaths to repayment issues in
Grameen type programmes.
 One more reason why MFI‗s critized for giving loans to the women because, women‗s
are weak compared to men‗s and by coerce them the MFI‗s can easily repayment their
loans.
 Another reason might be that the women not often change their whereabouts, because
they have the many responsibilities like children etc. and they easily found at home also.

 How the recent slowdown affects the MFI’s?

Microfinance institutions have weathered the global financial storm remarkably well, but in 2009
the credit crunch and global recession could hit the sector hard. The micro finance sector is not
fully integrated into mainstream banking and so MFIs are partially insulated from financial
markets contagion. From the very early of beginnings, the sector has expanded into a global
community of over 3000 MFIs serving 125 to 150 million customers in developing countries

27
with 25 to 30 billion dollars in loans. The industry has consequently attracted mainstream banks
like Citigroup, Standard Chartered, and BNP Paribas. SKS Microfinance, India's largest MFI,
recently raised about 75 million dollars from private equity sources.
The most immediate worry is that the global credit crunch will affect the cost and availability of
funding. The most vulnerable MFIs will be those that get their money from foreign banks. Credit
is now tighter, slower, and more costly. As financial institutions are struggling with their
liquidity, they have less money to lend to microfinance institutions, which in turn means less to
lend to the poor, and lending happens then at the higher rate.

Current slowdown also increases the rate of interest on borrowed sum, this further increases the
funding loan of the MFI‗s and the poor people who takes loan from the MFI‗s, would find it
difficult to borrow and this further increases the more people Below Poverty Line (BPL).
Microfinance institutions generate capital from three main sources: debt, deposits, and equity.
And during the recession all this sources of finance gets expensive. We will see one by one in the
following paragraphs.

a) Deposits:
Many MFI‗s main source of capital is from deposits, and this is the easiest source of capital but
during the recession, local currencies in developing countries lose value, clients will find it
increasingly difficult to maintain savings levels. Deposits may decline and non-performing loans
may increase as clients require additional capital to cover basic needs.

b) Debt –based MFI’s:

MFIs that depend upon this source of capital are at greatest risk during the financial crisis. In
today‗s economy debt financing is offered at a high rate of interest and during slow down the
demand from the investors get reduced and the MFI‗s have the fixed obligation to pay interest.
So this creates the difficulty for the MFI‗s and for borrowers during the time of slowdown.

c) Equity based financing:

28
This source of finance is not very popular in India. Because this needs a huge capital and many
MFI‗s in India are not in that position. Many microfinance banks are not disturbed by the global
happenings due to, the fact that they all have high savings- and deposit this leads to less
dependence on government, bank and external funding. But even savings-led institutions are not
immune to a global economic crisis. MFI managers now report that high prices for food and fuel,
a lack of demand for microenterprise products and decrease in the incomes of the earning
members are hurting their clients. More and more clients withdraw their savings or have trouble
repaying their loans.
 How the MFI’s find opportunities within the crisis?

 MFIs could also find opportunities within the crisis. Microfinance‗s relatively reliable
business model could attract investors looking to spread risks and diversify their
portfolios.

 The downturn could also force MFIs to grow less aggressively and focus on consumer
protection, transparency, and governance.

 More commercialization by the MFI‗s can also create situation of subprime style crisis.
So the slowdown would slow down the commercialization and helpful for the local
borrowers.

 One more solution to solve the money problem of MFI‗s might be, to turn MFI‗s into
bank, this can solve their liquidity problem by taking deposits and lending money.

 MFIs being criticized because of high interest rate:

Most MFI‗s financially sustainable by charging interest rates that are high enough to cover all
their costs. The problem is that the administrative costs are inevitably higher for tiny micro
lending than for normal bank lending. Lending out a million dollars in 100,000 loans of $100
each will obviously require a lot more in staff salaries than making a single loan for the total
amount. As a result, interest rates in sustainable microfinance institutions (MFIs) are

29
substantially higher than the rates charged on normal bank loans. Four key factors determine
these rates:
1) The cost of funds,
2) The MFI's operating expenses,
3) Loan losses,
4) And profits needed to expand their capital base and fund expected future growth.

There are three kinds of costs that MFI has to cover when it makes microloans. The first two, the
cost of the money that it lends and the cost of loan defaults, are proportional to the amount lent.
For instance, if the cost paid by the MFI for the money it lends is 10 percent, and it experiences
defaults of 1 percent of the amount lent, then these two costs will total Rs.11 for a loan of
Rs.100, and Rs.55 for a loan of Rs.500. An interest rate of 11percent of the loan amount thus
covers both these costs for either loan. The third type of cost, transaction costs, is not
proportional to the amount lent. Suppose that the transaction cost is Rs.25 per loan and that the
loans are for one year. To break even on the Rs.500 loan, the MFI would need to collect interest
of Rs.50 + 5 + 25 = Rs.80, which represents an annual interest rate of 16 percent. To break even
on the Rs.100 loan, the MFI would need to collect interest of Rs.10 + 1 + 25 = Rs.36, which is an
interest rate of 36 percent.

Formula to decide the interest rate is: R = AE + LL + CF + K - II 1 – LL Where AE is

administrative expenses, LL is loan losses, CF is the cost of funds, K is the desired capitalization
rate and II is investment income.

 Why Microcredit Rates are so high?

An MFI's main objective is to provide poor and low-income households with an affordable
source of financial services. Interest charged on loans is the main source of income for these
institutions and, because they incur huge costs, the rates are correspondingly high.

30
Many policy makers question why microfinance interest rates remain high even when MFIs
receive concessional funds to finance lending. Donors provide concessional funds for a particular
usage only for a limited period, as do some governments. However, concessional funds cannot
be considered a permanent source of funds for MFIs, and provision must be made through
interest rates to sustain the lenders' operations. The problem is that the administrative costs are
inevitably higher for tiny micro lending than for normal bank lending. Lending out a million
dollars in 100,000 loans of $100 each will obviously require a lot more in staff salaries than
making a single loan for the total amount. As a result, interest rates in sustainable microfinance
institutions are substantially higher than the rates charged on normal bank loans. Inflation adds to
the cost of microfinance funds by eroding micro lenders' equity. Thus, higher inflation rates
contribute to higher nominal microcredit interest rates through their effect on the real value of
equity.
Most of the Micro lenders face two kinds of operating costs: personnel and administrative.
Because micro lending is still a labor-intensive operation, personnel costs are high.
Administrative costs consist mainly of rent, utility charges, transport, office supplies, and
depreciation of fixed assets. Making and recovering small loans is costly on a per unit basis.
Often loan recovery is executed by staffs who visit clients, increasing costs in time taken and
transportation used. Poor physical infrastructure—inadequate road networks, transportation, and
telecommunication systems— in many countries in which micro lenders operate also increases
administrative costs and adds significantly to the cost of microfinance operations.

In many countries in the region, the majority of microcredit is provided by a few leading
institutions, and competition among them is mostly on non-price terms. Large-scale commercial
banks with access to low-cost funds, low operating costs, extensive branch networks, and vast
human and other resources to provide financial services efficiently are presently not significantly
involved in microcredit. The lack of participation of such conventional financial institutions in
the microcredit market also limits potential competition. This does not mean that all high interest
charges by MFIs are justifiable. Sometimes MFIs are not aggressive enough in containing
transaction costs. The result is that they pass on unnecessarily high transaction costs to their
borrowers. Sustainability should be pursued by cutting costs as much as possible, not just by
raising interest rates to whatever the market will bear.

31
 Inappropriate Comparisons:

 Microcredit interest rates are often compared with those charged by both commercial
banks and excessively subsidized lending organizations. Such comparisons are inappropriate.
Commercial banks most often deal with large loans, and their transaction costs are lower than
those of MFIs on a per unit basis. Thus, commercial banks are able to charge lower interest rates
than MFIs. A financial institution receiving large subsidies may charge lower interest rates than
other MFIs. In Bangladesh, the Grameen Bank charges an annual interest rate of 20% (on a
reducing-balance basis) on its main credit product. Because this rate was below cost recovery
levels, the Grameen Bank incurred losses for many years, and these losses were underwritten by
the big subsidies it received. Thus, Grameen Bank's interest rates should not be compared with
those of an MFI that has not received similar subsidies.
 Other inappropriate comparisons of MFI interest rates include those charged by
government-owned MFIs or government-sponsored microfinance programs that are often
compelled to charge lower-than-cost-recovery interest rates based on political considerations.
These comparisons also overlook that most of these programs and institutions in general are
unlikely to survive in the long term to serve the poor. Moreover, the poor have to incur unusually
high transaction costs to access credit from these sources due to credit rationing systems and
rent-seeking practices adopted by their employees.

Rate Ceilings: Not the Answer:

Lower microcredit interest rates will help increase of availability of affordable finance for poor
households."Policymaker concern over high interest rates has led many to suggest capping
interest rate by setting rate ceilings. Yet that this is not an appropriate solution, explaining "Rate
ceilings will diminishing the growth of the MFI industry and result in reducing the supply of
microcredit and other financial services, harming rather than helping poor and low income
households." If rates are set to a level less than that required to cover costs, lenders will incur
losses. Not only will this hurt MFIs‗ability to expand operations, but it will also reduce their
creditworthiness and ability to borrow. If a rate ceiling is imposed on a state-owned institution,
government will have to provide funds to cover the resulting losses. If the lenders mobilize
deposit, microcredit interest rate ceilings may decrease the saving with MFI‗s, because ceilings

32
depress the profitability and viability of MFIs, savers may be reluctant to place deposits in them.
This further increases the funding problem while curtailing a valuable service in demand from
poor and needy clients.

 Future of Micro Finance:

Microfinance expansion over the next decade can be expected to be an extension of what has
been achieved so far while overcoming the hurdles that have been posing difficulty in effective
microfinance operation and its expansion. There may be several participants in this process and
their participation may be seen in the following forms.
 Existing microfinance institutions can expand their operations to areas where there are no
microfinance programs.
 More NGOs can incorporate microfinance as one of their programs.
 In places where there are less micro finance institutions, the government channels at the
grassroots level may be used to serve the poor with microfinance.
 Postal savings banks may participate more not only in mobilizing deposits but also in
providing loans to the poor and on lending funds to the MFIs.
 More commercial banks may participate both in microfinance wholesale and retailing.
They many have separate staff and windows to serve the poor without collateral.
 International NGOs and agencies may develop or may help develop microfinance
programs in areas or countries where micro financing is not a very familiar concept in reducing
poverty.

Considering that the majority of the 360 million poor households (urban and rural) lack access to
formal financial services, the numbers of customers to be reached, and the variety and quantum
of services to be provided are really large. It is estimated that 90 million farm holdings, 30
million non-agricultural enterprises and 50 million landless households in India collectively need
approx US$30 billion credit annually. This is about 5% of India's GDP and does not seem an

33
unreasonable estimate. However, 80% of the financial sector is still controlled by public sector
institutions.

Competition, consolidation and convergence are all being discussed to improve efficiency and
outreach but significant opposition remains. Many private and foreign banks have unveiled their
plans to enter the Indian microfinance sector because of its very low Non Performing Assets
(NPA) and high repayment rate of more than 95% in spite of offering loans without any
collateral security. Microfinance is not yet at the centre stage of the Indian financial sector. The
knowledge, capital and technology to address these challenges however now exist in India,
although they are not yet fully aligned.

With a more enabling environment and surge in economic growth, the next few years promise to
be exciting for the delivery of financial services to poor people in India Development of Small-
Scale Enterprises through microfinance will not only increase the outreach but will also help the
generation of more employment and income for the poor. It is expected that in the following
years there will be considerable deepening of microfinance in this direction along with
simultaneous drives to reach and serve the poorest of the poor.

But the crux of the discussion is that, if the over excess involvement of the government would be
there in the Micro Finance sector, than the growth of the Micro Finance won‗t much possible.
The Govt. involvement should limited to the important decisions only, but not to interfere in
each and every matter of the management.

 Literature Review:

Priya Basu and Pradeep Srivastava (2005) reviewed the current level and pattern of access to
finance for India‘s rural poor and examined some of the key microfinance approaches in India,
took a close look at the most dominant among these, the SHG bank linkage initiative. It
empirically analyzed the success with which SHG bank linkage had been able to reach the poor,
examined the reasons behind this, and the lessons learned. The analysis in the paper drawn
heavily on recent rural access to finance survey of 6000 households in India, undertaken by the

34
authors. The main findings and implications of the paper are as follows: India‘s rural poor
currently had very little access to finance from formal sources. Microfinance approaches had
tried to fill the gap. Among this, the growth of SHG bank linkage had been particularly
remarkable, but outreach remains modest in terms of the proportion of poor households served.
The paper recommends that, if SHG bank linkages is to be scaled up to offer mass access to
finance for the rural poor, than much more attention would needed to paid towards : the
promotion of high quality SHGs that were sustainable, clear targeting of clients and ensuring that
bank linked to SHGs price loans at cost covering levels. At the same time, the paper argues that,
in an economy as vast and varied as India‘s, there was scope for diverse microfinance
approaches to coexist. Finally, the paper argues that, while microfinance could, at minimum,
served as a quick way to deliver finance to the poor, the medium-term strategy to scale-up access
to finance for the poor should be to ‗graduate‘ microfinance clients to formal financial
institutions. The paper offered some suggestions on what it would take to reform these
institutions with an eye to improving access for the poor.

Rajesh Ghosh, (2004) in this article traced the evolution of the Microfinance revolution in India
as a powerful tool for poverty alleviation and women empowerment. Where institutional finance
failed Microfinance delivered, but the outreach was too small. There was a question mark on the
viability of the Microfinance Institutions. There was a need for an all round effort to help
develop the fledged Microfinance Industry while tackled the tradeoff between outreach and
sustainability. This article was based on secondary data sources (duly acknowledged in the
article) and a Field Survey was carried out by the Author in the villages of Duttapulia, Gola
,Haridanga,Beladanga, Khushberia, Balia, Baranberia and Shindrani (Villages in Nadia district
of West Bengal).

Rajesh Chakrabatri, (2005) discussed the state of SHG-based microfinance in India. With
traditionally loss-making rural banks shifting their portfolio away from the rural poor in the post-
reform period, SHG-based microfinance, nurtured and aided by NGOs, had become an important
alternative to traditional lending in terms of reaching the poor without incurring a fortune in
operating and monitoring costs. The government and NABARD had recognized this and had
emphasized the SHG approach and worked along with NGOs in its initiatives. Over half a

35
million SHGs had been linked to banks over the years but a handful of states, mostly in South
India, account for over three-fourth of this figure with Andhra Pradesh being an undisputed
leader. In spite of the impressive figures, microfinance in India was still presently too small to
create a massive impact in poverty alleviation, but if pursued with skill and opportunity
development of the poor, it holds the promise to alter the socioeconomic face of the India‘s poor.

36
 RESEARCH
METHODOLOGY
 RESEARCH METHODOLOGY:

Research objectives:
 To know the awareness of the term ―Microfinance.
 To know the source from where they come to know about microfinance.
 To know the awareness about other services provided by MFIs among people.
 To know whether people are satisfied with the current interest rates charged by MFIs or
not.
 To know which other sources are people have access to get credit assistance.
 To know different factors which encouraged them to get the loan from different sources.

Research methodology is the method or the entire procedure involved in carrying out a research
for a specific purpose. Research is thus an original contribution to the existing stock of
knowledge making for its advancement. The purpose of research is to discover answer to
questions through tough application of scientific procedures.
 Research always starts with a question or a problem.
 Its purpose is to find answers to questions through the application of the scientific
method.
 It is a systematic and intensive study towards a more complete knowledge of the subject
studied.

As marketing research does not address itself to basic or fundamental questions, it does not
qualify. On the contrary, it tackles problems, which seem to have immediate commercial
potential. In the view of the major consideration, marketing research should be regarded as

37
applied research. We may also say that marketing research is of both types-problem solving and
problem oriented.

TYPE OF RESEARCH:

There are basically three types of research designs:

1) Descriptive Research, concerned with determining the frequency with which something
occurs or the relationship between two variables.
2) Causal Research i.e. based on cause and effect relationship.
3) Exploratory Research, major emphasis is on the discovery of ideas & insights.
This project used Descriptive research.
It is description of the state of affairs, as it exists at present. The main characteristics are that
researcher has no control over the variable; he can report what has happened or what is
happening.

 METHODS OF DATA COLLECTION :

a) Primary data:

Primary data are data freshly gathered for a specific purpose or of a specific research project.
When the need do not exist or outdated, inaccurate, incomplete, unreliable the researcher will
have to collect primary data. The normal procedure is to interview some people individually or in
groups to get a sense of how people feel about the topic in question and develop a formal
research instrument it into the field. In this project the sample size was: 100 The geographical
coverage was limited to vadodara region and some distinct parts of vadodara.

b) Secondary Data :

It refers to the data that were collected for other probably similar purpose and already exists
somewhere.

38
SAMPLE PROFILE
GENDER
Q General Information
Table 4.1
Gender wise differentiation of respondents

39
 GENDER NO. OF RESPOND % OF RESPOND

MALE 64 64

FEMALE 36 36

TOTAL 100 100

% OF RESPOND

64
70
60
50 % OF RESPOND
36
40
30
20
10
0
MALE FEMALE

Gender wise differentiation of respondents

Here on the basis of the survey we can find out the ratio between the male and female. That is
here 64% of the male have been participated and 36% of female candidates have been
participated.

AGE
Table 4.2
Age wise differentiation of respondents
AGE NO. OF RESPOND % OF RESPOND

40
 20-30 22 22

30-40 36 36

40-50 28 28

50 –Above 14 14

Total 100 100

% OF RESPOND
40 36
35
28
30
22
25 % OF RESPOND
20 14
15
10
5
0
20-30 30-40 40-50 50 Above

Chart 4.2
Age wise differentiation of respondents

In the conducted survey different age group people have been participated. In which 22% people are
between 20-30 age groups. Same as 36% of 30-40 age groups. 28% of 40-50 age groups. And 14% of
50 above age groups... As we seen there was minute difference among all of them. But there are 36%
of respond between 30-40age groups. This is very high compare to the rest.

INCOME CLASS
Table 4.4

41
 Income wise differentiation of respondents

INCOME NO. OF RESPOND % OF RESPOND

LESSTHAN 25000 19 19

25001-50,000 32 32

50,001-75,000 34 34

75001-100000 15 15

TOTAL 100 100

% OF RESPOND
34
35 32

30
25
19
20 % OF RESPOND
15
15
10
5
0
LESSTHAN 25001- 50,001- 75001-
25000 50,000 75,000 100000

Interpretation:
There are 19% of respondents are coming under less than 25,000 income class. 32% of respond are
under 25,001-50,000 income class. 34% of respond are under 50,001-75,000 income class. And there
are 15% of respondents are under 75,001-1,00,000 income class.

42
 CHAPTER 5
DATA
ANALYSIS

Analysis of data:

43
Analysis of data requires a number of closely related operations much as extension of categories.
Analysis work is generally based on the computation of various information by applying various
statistical formulae.

1. Are you aware about the term ―Microfinance?

Particulars NO. OF RESPOND % OF RESPOND
Yes 60 60

No 40 40

TOTAL 100 100

% OF RESPOND

60

60

50 40

40

% OF RESPOND
30

20

10

0
Yes No

Interpretation:
From the above graph it is interpreted that only 60% people are aware about the term
microfinance and 40% are not aware about the term.

2. If yes, how do you come to know about the Microfinance?

44
Particulars NO.OFRESPOND % OF RESPOND
Newspaper 8 10

Television 12 15

Magazine 4 5

Referrals 48 60

Stores Display 4 5

Any Other 4 5

Total 80 100

% OF RESPOND

60
60

50

40

30
% OF RESPOND
20 15
10
10 5 5 5

0
New spaper Television Magazine Referrals Stores Any Other
Display

Interpretation: From the above graph it is interpreted that referrals are the major sources from
where respondents come to know about Microfinance.

45
3. If no, what other sources you use to get the loan?

Particulars NO. OF RESPOND % OF

RESPOND
Banks 40 40

NBFCs 35 35

Friends/Relatives 10 10

Gold loans 9 9

Any other 6 6

Total 100 100

% OF RESPOND

40
40
35
35

30

25

20
% OF RESPOND
15
10 9
10 6
5

0
Banks NBFCs Friends/Relatives Gold loans Any other

Interpretation:
From the above graph it is interpreted that 40 % of people take loan from Banks, 35 % from
NBFCs, 10% from Friends/relatives, 9 % Gold loans and 6% from other sources.

4. After knowing regarding Micro finance do you think banks have good scope through
Microfinance Institutions?
Particulars NO. OF RESPOND % OF RESPOND

46
Yes 77 77

No 23 23

Total 100 100

% OF RESPOND

77
80

70

60

50
% OF RESPOND
40
23
30

20

10

0
Yes No

Interpretation: From the above graph it is interpreted that 77 % of people think bank have good
scope through MFIs and 23% are negative about this statement

Particulars NO. OF % OF
Q5. Are you aware about
the other RESPOND RESPOND services
provided by Depository 42 46.67 Microfinance
Institutions? Micro Insurance 6 6.67
Enterprise Development 24 26.67
Education 4712 13.33
Health Care 6 6.67
Total 90 100
Particulars NO. OF RESPOND % OF RESPOND
Yes 40 40
No 60 60
Total 100 100

% OF RESPOND

50 46.67
45
40
35
30 26.67
25
% OF RESPOND
20
13.33
15
10 6.67 6.67
5
0
Depository Micro Enterprise Education Health Care
Insurance Development

Interpretation:
From the above chart it is interpreted that 46.67% of people are aware about depository services
and 26.67% are aware about enterprise development services. So there is a need to make aware
about other important services.

6.Have you taken the loan from Microfinance Institutions?

48
 % OF RESPOND

60

60

50
40

40

% OF RESPOND
30

20

10

0
Yes No

Interpretation:
From the above graph it is interpreted that only 40% people have taken loan from MFI and 60%
have not. The institutions from where they have taken the loan include MAS Financial Services,
SIFCI, Peerless, etc.

7. Rate the services given by Microfinance Institutions

Particulars NO. OF RESPOND % OF
RESPOND

49
Very good 20 20
Good 37 37
Above average 25 25
Average 18 18
Below average 0 0
Total 100 100

Figures in %
37
40
35
30 25
25 20 Figures in %
18
20
15
10
5 0
0
Very good Good Above Average Below
average average

Interpretation: From the above graph it is interpreted that 37% of people are satisfied with the
current services provided. 20% of people have given very good rating, 25% have rated above
average and 18% have rated it average.

50
8. According to you which of the following factors are more crucial for rapid growth of
Microfinance Institutions?

Particulars 1 2 3 4 5
Low interest rate compared to money 60% 40% 0% 0% 0%
lender
Availability of loan 15% 20% 30% 35% 0%
Processing & Sanctioning of loan 0% 18% 17% 65% 0%
Installment factor 25% 22% 53% 0% 0%
Loan without collateral in emergency 0% 0% 0% 0% 100%

51
9. Do you think Microfinance has helped rural India?
Particulars NO. OF RESPOND % OF
RESPOND
Yes 73 73

No 27 27

Total 100 100

Figures in %

73
80
70
60
Figures in %
50
40 27
30
20
10
0
Yes No

Interpretation: From the above graph it is interpreted that 73 % of people think Microfinance has
helped rural India and 27% are negative about this statement.
79 Empirical Study on Microfinance

52
10. Do you think Microfinance is a tool to eradicate poverty?
Particulars NO. OF RESPOND % OF
RESPOND
Yes 69 69

No 31 31

Total 100 100

Figures in %
69
70
60
50 Figures in %
40 31

30
20
10
0
Yes No

Interpretation:
From the above graph it is interpreted that 69 % of people think Microfinance is a tool to
eradicate poverty and 31% are negative about this statement.

53
11. Do you think there are better prospects for Microfinance in future?
Particulars NO. OF RESPOND % OF
RESPOND
Yes 70 70

No 10 10

Can't say 20 20

Total 100 100

Figures in %
70
70
60
50
Figures in %
40
30 20
20 10
10
0
Yes No Can't say

Interpretation:
From the above graph it is interpreted that 70 % of people think Microfinance has better
prospects, 10 % are negative about the statement and 20 % of them don‘t have any view.

54
12. If given a chance, would you suggest anybody in future to take a loan from Microfinance
Institutions?
Particulars NO. OF RESPOND % OF
RESPOND
Yes 65 65

No 35 35

Total 100 100

Figures in %
65
70
60
50 Figures in %
35
40
30
20
10
0
Yes No

Interpretation: From the above graph it is interpreted that 65 % of people will suggest anybody in
future to take loan from MFIs whereas 35% people will not suggest due to interest rates and
other reasons.

55
 CHAPTER 6
SWOT ANALYSIS,
FINDINGS
AND
CONCLUSION.

56
 SWOT Analysis of Microfinance:

1. Strength:

a) Helped in reducing the poverty: The main aim of Micro Finance is to provide the loan to the
individuals who are below the poverty line and cannot able to access from the commercial banks.
As we know that more than 350 million people in India are below the poverty and for them the
Micro Finance is more than the life. By providing small loans to this people Micro finance helps
in reducing the poverty.

b) Huge networking available: For MFIs and for borrower, both the huge network is there. In
India there are many more than 350 million who are below the poverty line, so for MFIs there is
a huge demand and network of people. And for borrower there are many small and medium size
MFIs are available in even remote areas.

2. Weakness:

a) Not properly regulated: In India the Rules and Regulations of Micro Finance Institutions are
not regulated properly. In the absence of the rules and regulations there would be high case of
credit risk and defaults. In the shed of the proper rules and regulations the Micro finance can
function properly and efficiently.

b) High number of people access to informal sources: According to the World Bank report 80%
of the Indian poor can‗t access to formal source and therefore they depend on the informal
sources for their borrowing and that informal charges 40 to 120% p.a.

c) Concentrating on few people only: India is considered as the second fastest developing
country after China, with GDP over 8.5% from the past 5 years. But this all interesting figures

57
are just because of few people. India‗s 70% of the population lives in rural area, and that portion
is not fully touched.

3. Opportunity:

a) Huge demand and supply gap: There is a huge demand and supply gap among the borrowers
and issuers. In India around 350 million of the people are poor and only few MFIs there to
serving them. There is huge opportunity for the MFIs to serve the poor people and increase their
living standard. The annual demand of Micro loans is nearly Rs 60,000 crore and only 5456
crore are disbursed to the borrower (April 09).

b) Employment Opportunity: Micro Finance helps the poor people by not only providing them
with loan but also helps them in their business; educate them and their children etc. So in this
Micro Finance helps in increasing the employment opportunity for them and for the society.

c) Huge Untapped Market: India‗s total population is more than 1000 million and out of 350
million is living below poverty line. So there is a huge opportunity for the MFIs to meet the
demand of that unserved customers and Micro Finance should not leave any stones unturned to
grab the untapped market.

d) Opportunity for Pvt. Banks: Many Pvt. Banks are shying away from to serve the people are
unable to access big loans, because of the high intervention of the Govt. But the door open for
the Pvt. Players to get entry and with flexible rules Pvt. Banks are attracting towards this
segment.

4. Threat:

a) High Competition: This is a serious threat for the Micro Finance industry, because as the more
players will come in the market, their competition will rise , and we know that the MFIs has the

58
high transaction cost and after entrant of the new players there transaction cost will rise further,
so this would be serious threat.
b) Neophyte Industry: Basically Micro Finance is not a new concept in India, but that was all by
informal sources. But the formal source of finance through Micro Finance is novice, and the
rules are also not properly placed for it.

c) Over involvement of Govt.: This is the biggest threat that many MFIs are facing. Because the
excess of anything is injurious, so in the same way the excess involvement of Govt. is a serious
threat for the MFIs. Excess involvement definition is like waive of loans, make new rules for
their personal benefit etc.

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FINDINGS
Findings are one of the important parts of the report which shows whether objectives were
achieved or not. Under mentioned are some findings of the project:
 From the empirical survey we found that 60% of people are aware about the term
microfinance.
 Another important finding is that referrals are the major source from where respondents come
to know about microfinance.
 We also found that most of the people are aware about only two services i.e. depository and
enterprise development provided by MFIs.
 Only 40% of respondents have taken a loan from MFIs.
 77% of respondents agree that banks have good scope through MFIs and 73% of respondents
agree that microfinance has helped rural India.
 69% of respondents agree that microfinance is a tool to eradicate poverty and 70% of
respondents agree that microfinance has better prospects.
 Among the other sources from where people get the loan, banks and friends/relatives are the
most preferable one among 40% and 30% of respondents respectively.
 65% of respondents were agreeing that they will suggest someone in future if required to take
loan from MFIs.
 As response towards which factors are more crucial for rapid growth of MFIs, respondents
gave more weightage to low interest rates as compared to money lenders and installment factor.
Respondents gave least attention towards loan without collateral in emergency and processing of
loan.
 As response towards which factors encouraged to get the loan other than MFIs, respondents
gave more weightage to low interest rate and services other than loan. Respondents gave least
attention to faster processing and easy availability.

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CONCLUSION
Microfinance in India is still presently too small to create a massive impact in poverty
alleviation, but if pursued with skill and opportunity development of the poor, it holds the
promise to alter the socioeconomic face of the India‘s poor. Microfinance remains a powerful
tool for development. It may be a drop in the ocean, but it has made people self sufficient.
However, for sustainable development of the poor and rural economy, government have to focus
on development of rural infrastructure and the rural economy, otherwise there will be few
activities requiring finance. The study demonstrates that the awareness about Microfinance needs
to be created through more promotional measures. Awareness about the bifurcation between
banks and MFIs should be explained very well. People are not aware of Micro Insurance which
they consider that Insurance is only provided by traditional organizations like LIC and GIC.
People are not ready to change their mindset and this is the biggest constraints for the
development of MFIs. The study also demonstrates that the Micro Finance programmes have, to
a considerable extent, been able to help the poor in achieving a better level of living by providing
them easy access to credit to start/expand income generating activities.

61
(1) Chi-Square Test

 Comparison of Questions and Analysis

The Questions in the Questionnaire have been paired in two to study the Hypothesis. This pairing
has been done for better comparison of questions in the Questionnaire. The pairing has been
done to compare the demographic factors like Age and Gender with the trading policy. The chi-
square test is a statistical test that can be used to determine whether observed frequencies are
significantly different from expected frequencies. Chi-square tests enable us to compare
observed and expected frequencies objectively, since it is not always possible to tell just by
looking at them whether they are "different enough" to be considered statistically significant.
Statistical significance in this case implies that the differences are not due to chance alone, but
instead may be indicative of other processes at work.
88 Empirical Study on Microfinance
Based on the outcome of the chi-square test we will either reject or accept the null hypothesis. 1)
Awareness and age of the investors H₀ : Age doesn‘t affect awareness of Micro Finance. (Null
hypothesis) Ha : Age affects awareness of Micro Finance.
Chi-Square Test
Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 6.132a 3 .105

Likelihood Ratio 6.339 3 .096
Linear-by-Linear Association 1.620 1 .203
N of Valid Cases 100
a. 0 cells (.0%) have expected count less than 5. The minimum expected count is 9.00.

 Calculated Value 6.132

 Tabulated Value 7.815
 Calculated value < Tabulated Value, So, Null hypothesis is accepted.

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 Therefore here we can say that the age of the people does not affect the awareness of them
regarding Micro Finance, which is clear from the test.
89 Empirical Study on Microfinance
(2) Annual Income and Interest Rates

H₀ : Annual income doesn‘t affect perception of people about interest rates. (Null hypothesis) H₁
: Annual income affect perception of people about interest rates.
Chi-Square Test
Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 50.106a 9 .000

Likelihood Ratio 51.314 9 .000
Linear-by-Linear Association 34.813 1 .000
N of Valid Cases 100

a. 8 cells (50.0%) have expected count less than 5. The minimum expected count is 1.50.

 Calculated Value 50.106

 Tabulated Value 16.919
 Calculated value > Tabulated Value, So, null hypothesis is rejected
 H₁ is accepted

 Therefore we can say that the annual income of people affects their perception about interest
rates. A different annual income group person has different perception because of his different
objective and need.
90 Empirical Study on Microfinance
 Recommendations and suggestions:

Under mention are the few recommendations and suggestions, which were felt during working
on project of Microfinance:-
 The concept of Micro Finance is still new in India. Not many people are aware the Micro
Finance Industry. So apart from Government programmes, MFIs should create the awareness
about the Micro Finance.

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 There are many people who are still below the poverty line, so there is a huge demand for
MFIs in India with proper rules and regulations.
 There is huge gap between the demand and supply of money. Suppliers are less and demand
for the money is high, so there is a scope for private sectors to enter in this industry.
 There is a need to recognize a separate category of Microfinance – Non Banking Finance
Companies (MF–NBFCs), without any relaxation on start-up capital and subject to the regulatory
prescriptions applicable for NBFCs. Such MF-NBFCs could be defined as companies that
provide thrift, credit, micro-insurance, remittances and other financial services up to a specified
amount to the poor in rural, semi-urban and urban areas.
 There must be uniform code of conduct for all MFIs covering aspects including mission,
governance, transparency, interest rates, handling of customer grievances, staff conduct,
recovery practices, etc. After due consultations within the sector, such code of conduct must be
made mandatory for MFIs.

64
 BIBLIOGRAPHY
 Bibliography:

 Statistics for Management, Richard Levin & David Rubin, 7th edition, Pearson Education.
 C. R. Kothari- Methods & Techniques, 2nd edition, New Age International Publishers.
 Marketing Research-Methodological Foundations, Gilbert and Jr. Dawn, 9th edition,
Thomson publication.
 The ICFAI University Journal of Bank Management, Vol.VII, Oct-Nov-09.
 The ICFAI University Journal of Agricultural Economics, Vol.VII, Jan-Apr-2010.
 Magazine- Intelligent Entrepreneur, Vol.I, Issue 5.
 Basu Priya , Srivastava Pradeep (2005) ―Scaling-up Microfinance for India‘s Rural Poor‖.
 Chakrabarti Rajesh (2005) ―The Indian Microfinance Experience – Accomplishments and
Challenges‖.
 Ghosh Rajarshi (2004) ―Microfinance in India: A critique”.
93 Empirical Study on Microfinance
 Webliography:

 www.microfinanceinsight.com
 www.investopedia.com
 www.forbes.com
 www.indiamicrofinance.com
 www.nabard.org
 www.ssrn.com
 www.domainb.com
 online.wsj.com
 www.dnaindia.com
 www.microbankfinance.com
 www.scribd.com

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Annexure 1

QUESTIONNAIRE

Name: ………………………………………

Gender: Male Female

Age: 20-30 40-50

30-40 50 above

Educational Qualification: Illiterate SSC

HSC Other

Occupation: ………………………………….

Annual Income:

>25k 25-50k

50-75k 75-100k

1. Are you aware about the term “Micro finance”?

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 Yes No

2. If yes, how do you come to know about the Microfinance?

Newspaper Television

Magazine Referrals

Stores Any Other

Display

3. If no, What other sources you use to get the loan?

Banks Friends/Relatives

NBFCs Gold loan

Any
other

4. After knowing regarding Micro finance, do you think banks have good
scope through Microfinance Institutions?

No
Yes

5. Are you aware about the other services provided by Microfinance

Institutions?

Depository Micro Insurance

Education Enterprise Development

Health
Care

6. Have you taken the loan from Microfinance Institutions?

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Yes No

7. Rate the services given by Microfinance Institutions.

Very good Good

Average Above average

Below average

8. According to you which of the following factors are more crucial for rapid
growth of Microfinance Institutions? (Give rank)

Low interest rate compared to money

lender

Availability of loan

Processing & Sanctioning of loan

Installment factor

Loan without collateral in emergency

9. Do you think Microfinance has helped rural India?

Yes No

10. Do you think Microfinance is a tool to eradicate poverty?

Yes No

11. Do you think there are better prospects for Microfinance in future?

Yes No Can't say

12. If given a chance, would you suggest anybody in future to take a loan
from Microfinance Institutions?

Yes No

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Annexure 2

Calculation for “Chi – Square Test”

Pair: 1- Age,
Q -1
H₀ : Age doesn‘t affect awareness of Micro Finance. (Null hypothesis)
H₁ : Age affects awareness of Micro Finance. Case Processing Summary
Age * Are you aware about the term Microfinance?
Are you aware about the term Microfinance? Total

yes no
Age 20- 9 11 20
30
30-40 13 1 25
2
40-50 16 1 28
2
50&above 7 2 27
0
Total 45 5 100
5
98 Empirical Study on Microfinance
Pair: 2- Annual Income, Q -7 H₀ : Annual income doesn‘t affect perception of people about
interest rates. (Null hypothesis) H₁ : Annual income affect perception of people about interest
rates.
Annual Income * Do you think that interest rate charged by MFI if appropriate as compared to
money lender?
Do you think that interest rate charged by MFI if Total
appropriate as compared to money lender? .

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Strongly agree Agree Neither agree nor Disagree
disagree

Annual Income Less than 120000 0 4 0 11 15

120000-180000 6 16 7 8 37
180000-240000 10 19 3 1 33
240000&above 9 6 0 0 15
Total 25 45 10 20 100

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